European carbon prices are recovering after reaching a three-month low in mid-July, as investment funds are steadily boosting their short positions and the European Commission revealed how many permits it will sell over the remainder of the year.

Benchmark December 2024 EUA futures have recovered to just below €70/tonne after bottoming out at €64.24 early last week and are now back near the upper end of the €64-€72 range they have occupied since early June. That said, increased renewable energy capacity has lowered fossil fuels’ share of power generation across the 27-nation bloc, and industrial activity remains muted.

The EU has also updated its auction calendar for the remainder of 2024, showing a modest 4% increase in volumes to be sold from September to December. Crucially, however, there will be no increase in the number of EUAs sold under the REPowerEU initiative to raise funds for the Recovery and Resilience Fund (RRF). According to an updated auction schedule published by the EEX exchange, which hosts daily EUA auctions, the EU will sell 203.5 million EUAs in the last four months of the year, compared to 195.4 million over the same period in 2023.

The EU has been selling 610,500 permits three times a week since July last year to fund the RRF, and there has been some speculation in the market that this volume might be increased as revenues have fallen behind modeled projections. Maintaining the REPowerEU sales unchanged may be seen as moderately bullish in the short term and slightly bearish later on since the EU will eventually need to sell more EUAs to raise the mandated €20 billion.

The market is also anticipating a quiet August in the run-up to the new annual compliance deadline of September 30. Since covered installations are now required to accumulate and surrender EUAs by that deadline, there will no longer be a reduction in August auction volumes, and this may also slightly dampen market sentiment.

Nevertheless, prices appear resilient to fundamentals at the moment despite the growth in short positioning among investment funds. Speculators have increased their short positions to more than 63 million EUAs, the most extensive total short holding in more than three months.

RGGI Sets New Highs

Across the Atlantic, the RGGI market has seen prices continue to set record highs throughout the first seven months of the year.

Prices for the benchmark December 2024 RGA futures contract have reached a peak of $27.70/short ton in the last week, as high temperatures have boosted power demand for cooling across the region and sustained demand for RGAs.

The market has also taken bullish sentiment from the year’s first auction in March, in which the full Cost Containment Reserve for the year was sold, leaving no additional volumes to meet the rising demand. At the same time, regulators across the ten member states are working on reforms to the market under the third Program Review, which is expected to conclude its work in the near future. The review began in early 2021 and is scheduled to end at the start of this year.

Carbon Market Roundup

The weighted global price of carbon is $50.79, up 1.8% from the week prior. EUAs are up 6.5% for the week at €71.18. UKAs are up a slight 0.3% at £39.91. CCAs trended down 2.1% at $33.95. RGGI is up 5.2% at an all-time high of $27.25.